Smart Parking Ltd

ASX:SPZ

Earnings Call Transcript 2023-Q3

[Michael McNair]

I think everybody has now joined the call. Good morning, everybody, and thank you for joining us. This is the Smart Parking Q3 Business Update Investor Call. And with me, I have Paul Gillespie, CEO; and Rich Ludbrook, CFO.

The format of today's call will be: Paul will take you through the slides that we've released to ASX this morning, and then we'd be pleased to open the line for questions. Thanks again for joining us.

And on that note, I'll hand over to Paul.

[Paul Gillespie, executive]

Thank you, Michael. Just a quick sanity check, make sure everybody can hear me and what I'm saying. I'll take that as a yes. So good morning, everyone. Thanks very much for joining the Smart Parking Q3 Business Update Conference Call.

The purpose of this short call is to provide shareholders with an update and transparency on our strong Q3 performance and also the outlook for Q4. The business is clearly trading well with growth in both the U.K. and in new territories. Today, I'll take you through the highlights of the presentations we've released to the ASX this morning, and then we can open the line for some questions.

But first of all, on Slide 2, as we're showing here. As I said, during the FY '23 H1 results update, Smart Parking is a profitable, cash flow-positive, self-funding growth company with a long-term growth runway ahead of us. This update demonstrates our continuing progress.

For Q3 and in constant currency, revenue was $34 million, that's up 29% versus PCP. We closed the quarter with 1,043 global ANPR sites, growth of 24% compared to June 30, 2022. We also targeted on our last briefing, we went past the 1,000 site mark on February 20. So you can see these numbers that March has been a good month for new business and sign acquisition.

The adjusted EBITDA, which excludes the $1.2 million of investment costs we've made in Germany, was $8.9 million, that's a rise of 42%. The operating leverage continues to come through as a scale. The adjusted EBITDA margin, excluding German investments, increased by 243 basis points to 26.2%.

Shareholders will remember that Q3 is a seasonally quieter course for SP, particularly in the [indiscernible]. The inclement weather in the U.K. impacts put traffic. This in turn impacts PBN issuance. So these results are very encouraging, given the circumstances.

Our performance is a direct result of the disciplined continuous execution of our growth strategy. We delivered good growth across all areas of the business. Importantly, the investments we've made to build share in new markets are diversifying our revenue streams and delivering returns.

If we look now to Slide 3, we can summarize the quarter. We'll continue to scale the core business in the U.K. and APAC, while building foundations for growth in Germany, which is our largest addressable market. Revenue is growing rapidly in APAC with 286% growth. The disciplined execution of our sales strategy is gaining traction and delivering results.

We continue to win, install and manage customers across APAC. We have over 100 sites in the margins and this number continues to grow. It's worth remembering that in June of '22, we have 47 sites in the region. However, it's worth highlighting that we've not installed any new sites in Queensland in February this year, which I'll talk more about as I'll give you a further update on Greensand later in this deck.

In Germany, we started to gain more pace with further contract wins in the retail and fast food sectors. We signed key contracts with Aldi, Burger King, and KFC. These leads prove the best model and give us great use cases for new customer opportunities. While our initial start in Germany was little slower than I like, I would have liked. We have made some changes to the sales efforts, and we're now making good progress.

So how does Q4 look, which is seasonally our best quarter. Our momentum is carrying through into the fourth quarter. We've listed some tailwinds here on the right-hand side of the page. As I say, Q4 is our seasonally strongest quarter. We expect further growth in the U.K. and APAC with an increasing contribution from Germany. We'll also benefit from a full contribution from sites added in Q3 with a good number of these performing ahead of expectations.

As talked about in recent updates, we continue to look for accretion acquisitions to accelerate and supplement our organic growth. We expect ongoing positive cash flow and operating leverage and with net cash on our balance sheet of over $10 million, we are well placed to fund our growth strategy. We're also on track for 1,500 sites under management by June 2025. I may add comfortably more than 2/3 of the way towards that on.

We can turn to Slide 4, please. Let's analyze the Q3 financials in a little more detail on this page. It's clear to see from this slide that that we have a good growth track record. As you can see, we're reporting in both constant currency and actual FX.

Revenues for Q3 of $32.5 million in actual FX and $34 million in constant currency. Adjusted EBITDA of $8.5 million and actual FX at 8.9% in constant currency. We've invested $1.2 million in costs in Germany in the period, which is excluded from the adjusted EBITDA. We spent $200,000 on general setup costs in the prior corresponding period. Including these costs, EBITDA would have been $7.7 million.

Now I don't really want to focus on FY '21 results today. But as you can see on this chart, it was just 2 years ago, we made $600,000 of EBITDA in Q3 year-to-date number. This shows the strategy is working well, and we've come a long way since then.

So Page 5, we break down the growth drivers. We showed 5 charts from Q3 versus PCP. And the FY '23 year-to-date compared to the first 9 months of FY '22. I'll call out some other as I see it. So we closed Q3 with a total number of ANPR sites under management 143, which has grown to 33%. We had 899 sites in the U.K. and 144 across new territories. This demonstrates that the growth in sites outside of our core U.K. market and validates our offshore expansion strategy.

Added to this, the growth in APAC also helps to reduce the group's seasonality around the U.K. summer period. In time, the region will help us deliver more consistent earnings across the year. The parking breach notices or PBNs, we show Q3 versus PCP, delivering growth of 75%, and we show FY '23 year-to-date versus PCP, up 28%. These charts demonstrate the growth is accelerating and productivity of recently on site is in line with or ahead of our expectations.

We go to Slide 6, please. I'd like to address the fundamental question, which underpins our financial performance, which is why are we winning and continuing to win in this field. On this slide, we lay out the Smart Parking customer value proposition. We also showed some quite satisfied customers to show shareholders the type of feedback that we get regularly. And every day, the smart parking team go above and beyond to deliver to our customers and keep us ahead of the competition.

So why do our customers like the offer? Our parking management systems, solutions and people improve casting satisfaction and generate additional revenue through effective management. The increased foot traffic at parking sites and driving alternative. Our systems reduce the use of their assets, and we also provide data analytics to drive customer insights.

Added to this, we paid upfront CapEx cost to the customers. However, at a payback of circa 7 months, it's good business. This is why we're confident we can continue to deliver sustained growth at high returns well into the future.

We go to Slide 7. So what's our strategy to leverage our proprietary technology, operational expertise and our market-leading offer? We have 3 growth goes, which we're executing: organic growth in existing markets; grow in new territories; and high-quality M&A.

I'll let let me read the details in your own time, but the 3 key points for me are point one, with over 1,000 sites today, we have less than 1% of the total addressable market in the markets where we're operating, not to mention adding the potential for new territories as we -- that we are currently evaluating. It's a very large growth runway and we're in the development of this business.

The second point is our expansion strategy costs -- sorry, our expansion strategy is low cost. We've spent $1.2 million in Germany this year. But this has given us people, supply chain, delivery capability and, of course, customers. Added to this, our organic expansion is still funding. With the average site install cost of $18,000, we get a quick payback, enabling us to maintain the current growth rates and pay for ourselves.

And the third point I'd like to make is while we have a good pipeline of M&A opportunities to supplement our organic growth, we will continue to be disciplined on what we buy. The new sites have to be a proved strategic fit, leverage our technology and be earnings accretive. We want to maintain our good track record in this area.

Before I move on to the final slide, I want to update shareholders and the current regulatory challenges we're facing acres. Since our last update, we've been actively engaging with the Queensland government, the industry and our customer base to find a solution that will work for government and SPZ.

Whilst it's been a slow process, we do have a meeting with the transform meter on Wednesday next week to discuss our business and the potential of implementing a code of practice similar to that, that we worked in the U.K., New Zealand and Germany. We believe this is the best way forward to create transport, the transparent environment for the government, our customers and the mature facilities that we manage. I hope to be able to update the market further in the near future.

And as to Queensland, shareholders will know there are some changes to the U.K. core practice on the horizon. Whilst this is still not confirmed, we know that any decision that's been pushed back again to later this year. However, there have been some positive movements in Scotland where on-street parking breach notices have now increased to GBP 100 and above.

This is particularly good news for us as shareholders will remember that 1 of the ideas tapered by the government was to put private parking breach notice levels in line with let authority. Now that Scotland has increased the level of parking charge, we believe there is a good chance this will be taken up by let authorities in England and Wales.

In fact, we're aware of an open letter sent to the government from 300 local authorities in England stating that as the on-street charges haven't been reviewed since 2004, they need to be increased to GBP 100 and above. Of course, I'll keep shareholders up-to-date with the developments in the U.K. and Queensland as we get more information in the situation evolves.

Okay. Let me turn to Slide 8 and the final slide, please. So as you've got, we delivered a strong performance in Q3, 42% growth in EBITDA in a challenging macro environment is encouraging. We had comfortably more than 2/3 of through our North Star target 1,500 ABR sites under management by June '25. The strategy to expand offshore to complement the core U.K. business is delivering growth and good returns.

Entering new markets is hard and requires significant work and effort from the team. However, these results are the validation we can be successful in new markets, and we'll continue to look for further opportunities. We're gaining scale, and we've expanded our addressable market to 140,000 sites. There is plenty of growth to be had there as we continue to execute well.

And finally, our balance sheet is strong. We can self-fund our growth strategy were discipline around being a growing, profitable and cash flow-positive business with high returns on capital and net cash. So in Q4 and beyond, we'll be leveraging our leading industry of reputation for compliance, the deep expertise of my colleagues across the group, our proven business model proprietary technology and a compelling value proposition for site owners.

That brings me to the end of our presentation today. Thank you for your attention. We can open up the lines some questions. I'd be happy to take Q&A.

[Michael McNair]

Thank you, Paul. If you'd like to ask a question, please take yourself off mute, and go ahead.

[Michael McNair]

I might start as we give people time to. Paul, can you talk about the pipeline of new sites in Germany and which sectors perhaps you're targeting first as the low-hanging fruit?

[Paul Gillespie, executive]

Yes. I mean in terms of -- we like the other territories. We've got a very similar sales approach. Obviously, built the sales team. We'll go through a process of training course co-calling care management, so on and so forth. But the key wins we've had so far have predominantly been in retail and class food, okay? So those are 2 sectors, clearly, in that part of the world, which are experiencing challenges in their sites, which is the reason why they're looking for people like us for a parking private parking operator to manage the enforcement environment in that location.

Added to that, though, I mean, we also have got a number of things in our pipeline that looking around, say, for example, the fitness industry, gyms, those sorts of places. And of course, the cities we operate at the moment, Berlin, Dusseldorf, Munich, those kind of areas. They're very, very big, busy places with lots of pressure on parking. So it doesn't matter whether it's fast food, retail, health and fitness, medical centers, hardware it could be anything, really, anywhere where there's pressure on parking. That's what our sales people are interested, does what we're interested in because we want to gain we've got a great product to solve their problem.

So it's really, I guess, more of the same, Michael, because we've already been successful in those areas, but we do have a number of other verticals that we're attacking as well.

[Michael McNair]

Thank you, Paul. Who'd like to go next?

[Paul Gillespie, executive]

Russian guys.

[Unknown Analyst]

Paul, I'll jump in. Luke from [indiscernible]. Just a quick one on Germany. The German losses ramped up a little bit from the run rate over the first half. You sort of mentioned offhand adjusting the go-to-market, the sales strategy. Just want to dive into that one a bit more. And moving forward, what do you see there -- those losses being? Was there some one-offs in that quarter? And when do you think it will tip into that sort of profitability like APAC has?

[Paul Gillespie, executive]

I guess, I'll cover the first point, the sales effort. I mean, if any business, the most important people really are your salespeople because nothing happens until somebody sells something, right? And I've always lived by that mantra, and I believe it's the true because without contracts, we got nothing, right? So I think we've had a few challenge to sales people in that territory. We've had to make a few changes. And that's the comment I made lease the changes in sales efforts. We've refocused them. I dispatched one of our U.K. people over there as well to actually do further training and assist.

So I guess, the additional training they've had, the additional focus, the additional, I guess, attention to that area has started to make more of a difference in the last, I would say, 6 months -- 5, 6 months. So I guess what we'll see into the second half and into Q4 and into the new year is greater efficiency in that environment.

In some respect, we've the same issues in other areas. It took a long time to get -- really get going in New Zealand with the sales effort there. But what I'd say now is we have a robust, really business growing very strongly quickly all around the country. And of course, the regulatory environment is suitable for us there as well as the even cost of operation is low. So it's a very profitable business.

Australia, we seem to be actually do very well. We expanded very quickly. Of course, we've got some challenges with the government there, but that's a fretting -- so we've got the sales that were absolutely bang on in Australia. And of course, the U.K., we've got that right for a long time. But yes, finally, the right mix of sales hedge is the biggest challenge, Luke, to get us over line.

In terms of costs, Yes, we're obviously hiring more people. We're obviously buy stock, we do all that kind of good stuff. So clearly, there's going to be some costs there. And Germany is an expensive place. It's not cheap. We've seen a few increases in costs just to general things going up and replace costs.

But when do we took into profitability, I would say are between 50 and 70 sites under management, you'll see the business will be profitable. But of course, we don't want to stop there. We if we can go faster, and we have to hire more people, then, of course, that might be pushed out to 80 sites, for example.

But we have a clear line of sight of where we can be fossil, we land. -- but it really depends on how quickly that happens. So we're actively pushing right now to try to get the sales folks go in the right direction deliver like we do in other territories consistently month in, month out. Beautiful. We'd like to go next.

[Unknown Analyst]

Paul, it's Michael from E&P. How Mike Yes, good things. Can you just help me understand where you've got the target for 1,500 sites I assume not all sites are the same and you'd probably be more focused on the bigger sites. But just help me understand sort of, I guess, firstly, the definition, like, you obviously don't want to fill up a site with 10 or 20 car spots or whatever you might call it. That's kind of a relevant you want to go for the bigger ones.

And also, just with regards to the second question is your sales was, obviously, a lot more focus there. And then sort of drawing through sort of your slide decks, you sort of have relationships with real estate trust and everything like that. So I guess, break -- trying to break it down between corporate real estate trust, which have clearly multiple sites versus the man or man or man or woman coverage from independent operators of sites? How are you sort of -- have you -- have you got you've been able to break that down as well to really target the accounts that your sales team should be going after. Thanks very much.

[Paul Gillespie, executive]

Yes. I guess I'll cover the first one. I mean, in terms of size of location, how many parking spaces may have, it's almost relevant, right? And it's -- which is quite a unique thing to say because we've got sites, whether it be New Zealand, whether the U.K. or Germany or Australia, where some of them might have 1,000 spaces will be very average.

Well, you'll see a contravention rate, which is bang on mortgage expect and generates GBP 2,500 a month in revenues for example, right? But you might get the 20 space car park that's in the middle of a CBD that is right next to a hospitality venue, next to bust of next to another High Street that generates 10,000 a month. And we've got several sites like that.

So we try not to be -- whilst we've broken down, particularly in the U.K., which is obviously far more advanced in its growth trajectory. We break down the sales team there as to -- they're on coal calling, but there will be people who cold-call particular verticals. There'll be a couple of guys who focus just on the multiple type customers, the more enterprise style customers, if you like, multiple sites.

We have people who specialize in managing agents, so the likes of Savills, Jones Lang LaSalle, Knight Frank, Colliers, those sorts of customers, we have a lot of sites with those customers. So we're breaking that out way in the U.K.

In the likes of New Zealand, Germany, Australia, it's look guys, we want to grow. This is the mandate. This is what you're looking for. It doesn't matter if it's 20 spaces or 200 space or to spaces -- if it's got the right parking pressure around it, it's in the right place in the right environment. It will be a -- it will need our services and will need our technology, and we'll be able to be profitable from it. So that's that's how we break it down, really. It's not like, okay, I don't look at anything under 100 spaces because that will be silly you're walking past there I see gold mines, which for we've got a lot of the U.K. So we -- whilst we've broken that down in sales approach in the U.K., again, a more advanced in the likes in Australia, New Zealand and Germany, it's very much get out and find the customers. It doesn't matter if it's an enterprise star customer, and it doesn't matter if it's a guy or a personal owns a bit of land, they just want to want to make money from it, right? And so we don't discriminate see Paul, it's Richard Morrow here. How are well done, great numbers. Just wondering -- just if you could give us some quick color about the technology side, anything there to report? Not a great deal to report. But clearly, we still have a number of customers that we're contracted to and we continue to deliver those services. We've delivered a new solution, not for here in not proper, the Alfred Hospital, a new guidance solution went in I think, late last year finished earlier this year. So there's a few of those projects we still do rigoBunbury. We delivered not long ago, a couple of thousand centers -- but what I would say is that whilst the technology business has built this wonderful platform called Smart Cloud, which is what essentially runs our business and also is delivering great insight to our services customers -- we've taken the decision to really focus on that services business. That's what's allowing us to open new territories. That's what's allowing us to really grow at the pace we are. And while we're still with the technology there, we're still good projects happening. I guess the real focus at the moment is on that services business and driving growth and finding growth opportunities, whether it be new territories, organic or M&A. So that's the key focus mate. Well, let's have a question from Eden in chat room. How likely is it that existing relationships with the likes of Aldi and KFC in Germany will translate into gaining new contract wins with their subsidiaries in the APAC region. We've had essentially we've had some success with a with other -- with customers in the U.K., for example. And we've been giving contacts the kind of opposite numbers in the APAC region and also in Germany. I guess 1 of the ones here, we did very well with Collins Food Group actually in Australia, and they put us in touch with their colleagues in Germany to have been now in concession with them. So there is some synergies, some operation, sort of potential synergy between those territories. You do find that these large companies do tend to operate independently. They're sort of country by country -- but yes, it's -- we have had some success in gaming appointment of meetings and talking about it. We're yet to actually close a deal from that yet. But we'll keep pushing. So there's opportunity there. Paul, John Tower in New Zealand Craig. Just interested in the competitor landscape and when you're winning sites -- are you having to compete. And if you don't want to site, what's often the reason that you might not win the site. Yes. There's -- I mean, clearly, different territories have different competitive base. U.K. is a very congested market. There's lots of people offering a very similar service in Australia is very few competitors in New Zealand, we've seen in the late, we've actually seen more competition, but it's been an interesting interesting 6 months in de whilst we believe we're growing quickest over there. And I guess the biggest operator on how is basoparking, but quite a different operator, they are different types of products. But in the kind of enforcement states, we're absolutely growing quicker than with anybody else. You may have seen yourself, John, in your local town, the pace, we've posted up a few times. So hopefully you'll be able to get 1 of our tickets soon, which would be nice. But why do we -- why don't we win? -- could be any number of reasons. It could be as an existing relationship, for example. So in New Zealand, there's an existing pressure with Wilson or PES as they call themselves there. it's actually quite easy to break because a lot of customers are now happy with their relationship with an over there. And we're seeing that as a big opportunity. We been up against to get some at a number of times. And yes, we've lost in the past to them because the existing relationships really. And if they've done a good job, you're holding that ratio or building it well and doing the right things and managing the account correctly, then there's a good chance they're going to hold it, right? But we've also managed to break it several times. Other than Wilson, we don't really compensate anyone else. -- there's a few smaller operators, but they're not out there like we are really pushing plugging market with salespeople and pushing the kind of CapEx remodel that we are. Are there other competitors over there, John? -- it's lots of towing companies, low to sites we go to, there's to companies everywhere. And so again, it's quite easy to win from them because the product they're offering is very, very good to us, which is less legacy. There's no technology involved site customer data insight, if you like, that we can provide with the technology. So that's kind of -- it's a great area for us because more of those to companies are rather and it's quite easy to winter. But the only pipe we lost against in New Zealand is has been more. And I guess the biggest operating show. So you're going to lose from time to time today. guys, can you guys hear me? SP-6 Yes.

[Unknown Analyst]

This is Stella. Just 1 quick question, please, regarding Germany. Just want to confirm, H1, did the investment in Germany, amount to $0.9 million, and therefore, this quarter is actually $0.3 million investment.

[Paul Gillespie, executive]

Yes, that's right.

[Unknown Analyst]

Yes. Thanks for that clarification. And in terms of the progress in Germany, I'm just thinking the experience in Queensland and potentially other new opening markets for parking ticket. Would you expect to see a kind of a gold rush mine site Might of people who might not be that compliant and just go and maybe you should tickets more compliantly and therefore causing abrupt sudden regulatory movement, such as Queensland. Would you see that as a risk? And have you seen such a situation in other emerging markets in history

[Paul Gillespie, executive]

I guess the -- I mean, the kind of -- the idea of the gold rush, that's a good term stat. I mean, the idea of the gold rush, it's interesting. In Germany, in particular, -- there's a number of parking operators like call traditional conventional parking operators to provide people. Guys in live with jackets warning car parks will be issued fixed by hand there'll be traditional CBD style, like we are, that's the thing, right? We're not seeing kind of an influx of the Rogue operators, if you like in Germany, and that was pretty much what's happened in the U.K. years ago, right, which is why the Codora is evolved and it is what it is today. they're always changing and adding it and making or regulated, which is a good thing, a really good thing for us because we understand regulation, we can work to meditate and like and stuff because we're listing with the list to come ready this space. So for now, the honesty question that we haven't seen that kind of rush of under regulated operators, if you like. And I guess the key thing to remember about the whole Queen zone situation is Queensland is the only territory that we opened up in that doesn't have a code practice. -- right? So it doesn't have a cord of practice that the industry works to or a code a practice that's been agreed by government July. So in New Zealand is copasetic has been signed off by government as well. So everyone knows what we're also engaging our and this is how you have to operate. And if you go outside of that, you're going to be in trouble, right? The same happens in Germany. It's a compact in place. It's been there for a long time about how you access data from the big the DLA. And of course, the U.K., it's been really structured document that we all have to work to, again, there's also engagement there. So Queensland is different. It's different because it's the only kind of replace that doesn't have a co-practice which is why it's so important and we're really lobbying hard to govern right now is if you want this to operate correctly, right, rather than just a blanket, you can't access, keep the details, put the copra in place, give people a license if you want license to operate. And if you go outside of that, they lose acts, which that is the way it is in the U.K. It's exactly the way it's in Germany, exactly where it is in New Zealand. So for us, we're always looking for new territories -- of course, we went with Queensland because we could see other operators accessing key details. We worked at how it works, that through a legal arm that you had to go through. And that was fine, right? But of course, even though we start to government that kind of practice, it didn't work at the time and now clearly is more important -- but to answer your question in a short way, we're not seeing a gold rush of ROV operators in Germany or other territories right now that are going to potentially dangerous -- but also, I don't see it happening in those territories because again, there's a contraction place is incited by governance and it's very different to the Queensland vine. Thanks for that.

[Michael McNair]

Do we have any other questions from anyone

[Paul Gillespie, executive]

Lately for good behavior. Thank you, Michael. I was just looking down the list of people Sigorecognize the name of player, people they normally like to ask questions, but if there is anything else you guys have that wants to get some clarification on, please feel free to call me or e-mail me. You guys have got my details. And we are on the road seeing shareholders next week, just to talk about this update and run through what we're doing, just the Q3 general update around the business. So we're in Sydney on Monday, Tuesday, in Melbourne on Friday next week. And of course, we've had to break the week because of the Queensland meeting, I couldn't miss on Wednesday. So if there's any other questions in the meantime, please don't hesitate to right to me or call and certain thing else we can do as -- so unless there's any other questions, Michael, do you want to wrap that Yes, I think that's a good idea I guess I'll just leave you the final piece, guys, which is, as I kind of keep repeating a number of times. And so what we're doing, where we are and how we're operating. And I said at the top of the call, we smart parking is a profitable cash flow positive growth company, right? And our emphasis is clearly growth. We want to be much bigger, a bigger business and scale up as much as we can. -- but the emphasis is on remaining profitable, okay, and cash flow positive. So we're very, very conscious of that to try and remain in that mindset. Clearly, -- you've got a long growth runway ahead of us in the total addressable markets we operate in were over 140,000 sites we of that market right now. So clearly, it's a long, long way to go and a big opportunity for growth in this space. And I guess with that, I'll say thank you very much for joining. It's great to see selling people on a Friday morning. And any questions you have as says no. But with that, thanks a lot, and we'll speak to you again soon.

[Michael McNair]

Thank you.